Intermountain Community Bancorp Reports Second Quarter Earnings

Wednesday, 23 Jul 2014 | 9:09 PM ETGlobe Newswire

SHARES

SANDPOINT, Idaho, July 23, 2014 (GLOBE NEWSWIRE) -- Intermountain Community Bancorp (Nasdaq:IMCB), the holding company for Panhandle State Bank, reported $1.3 million, or $0.19 per diluted share, in net income applicable to common shareholders for the quarter ended June 30, 2014, as compared to net income of $1.0 million, or $0.16 per diluted share, and $1.5 million, or $0.23 per diluted share, in the first quarter of 2014 and second quarter of 2013, respectively. Higher net interest income, a lower loan loss provision and higher other income offset higher operating expenses to produce the improvement over first quarter 2014 results. Stabilizing net interest income and a lower loan loss provision in the second quarter of 2014 were offset by lower other income and a higher tax provision in the comparative results from the same quarter last year. For the first six months of 2014, the Company reported $2.3 million, or $0.34 per diluted share, compared to $2.5 million, or $0.39 per diluted share for the same period in 2013. For these comparative time periods, reductions in interest and other income and a higher tax provision offset lower interest and other operating expenses.

"After a period of declining net interest margins as a result of low market interest rates, our net interest income appears to be stabilizing and we continue to lower credit and operating costs," said Chief Executive Officer, Curt Hecker.

On July 23, 2014, Intermountain and Columbia Banking System, Inc. (Nasdaq:COLB) ("Columbia") jointly announced the signing of a definitive agreement to merge Intermountain with Columbia in a stock and cash transaction valued at approximately $121.5 million or approximately $18.22 per share based on Columbia's July 23, 2014 stock price. The press release dated July 23, 2014 announcing this agreement contains additional details.

We're excited about our partnership with Columbia, and the development of the Northwest's premier community bank. We believe that the united institution will provide a host of new benefits and opportunities for our shareholders, customers, employees and communities," Mr. Hecker said.

Second Quarter 2014 Highlights (at or for the period ended June 30, 2014, compared to March 31, 2014, and June 30, 2013)

Interest income improved $426,000 over the first quarter, as asset yields increased from 3.81% to 3.95%. While results were down from a year ago, the recent trend reflects stabilization in the Company's yield on earning assets.

Interest expense continued to decrease, totaling $777,000 for the second quarter of 2014, compared to $782,000 for the first quarter of 2014 and $951,000 in the second quarter of 2013.

$3,000 in loan loss provision was recovered during the second quarter, compared to loan loss provision of $103,000 and $247,000 in the first quarter of 2014 and second quarter of 2013, respectively.

Net loans receivable increased by $13.3 million over the first quarter 2014 balance and were stable with last year's total.

Assets and Loan Portfolio Summary

Assets totaled $920.2 million at June 30, 2014, compared to $910.5 million at March 31, 2014 and $930.6 million at June 30, 2013, respectively. The increase from the March quarter reflects growth in net loans receivable, while the reduction from last June reflects the use of cash to redeem the Company's Capital Purchase Program ("CPP") preferred stock in November 2013. Net loans receivable increased by $13.3 million from March 31, 2014, led by strong growth in commercial and agricultural balances. Loans receivable were down $2.5 million from June of last year, as growth in commercial and agricultural totals were offset by decreases in commercial real estate loans.

"We're encouraged by the improvement in commercial and agricultural balances as businesses gain more confidence, and our lenders attract new customers," noted Hecker. "We've been cautious on commercial real estate lending, however, as current market conditions favor lower pricing and longer durations than we've been comfortable with."

The following tables summarize the Company's loan portfolio by type and geographic region, and provide trending information over the prior year.

LOANS BY CATEGORIES

(Dollars in thousands)

6/30/2014

% of total

3/31/2014

% of total

6/30/2013

% of total

Commercial

$118,353

22.4%

$110,879

21.5%

$113,699

21.4%

Commercial real estate

169,234

32.0

174,371

33.9

190,816

36.0

Commercial construction

12,293

2.3

15,230

3.0

10,085

1.9

Land and land development

34,216

6.5

30,695

6.0

30,895

5.8

Agriculture

105,545

20.0

94,809

18.4

94,831

17.8

Multifamily

13,310

2.5

14,529

2.8

15,271

2.9

Residential real estate

57,914

11.0

58,333

11.3

58,309

11.0

Residential construction

2,021

0.4

1,533

0.3

2,004

0.4

Consumer

8,860

1.7

8,672

1.7

8,843

1.7

Municipal

6,500

1.2

5,928

1.1

6,029

1.1

Total loans receivable

$528,246

100.0%

$514,979

100.0%

$530,782

100.0%

Allowance for loan losses

(7,683)

(7,779)

(8,042)

Net deferred origination fees

(283)

(200)

—

Loans receivable, net

$520,280

$507,000

$522,740

LOAN PORTFOLIO BY LOCATION

June 30, 2014

(Dollars in thousands)

North Idaho - Eastern Washington

Magic Valley Idaho

Greater Boise Area

E. Oregon, SW Idaho, excluding Boise

Other

Total

% of Loan type to total loans

Commercial

$80,344

$6,063

$9,583

$18,686

$3,677

$118,353

22.4%

Commercial real estate

118,130

9,004

9,373

16,312

16,415

169,234

32.0

Commercial construction

12,293

—

—

—

—

12,293

2.3

Land and land development

26,138

1,403

5,013

1,190

472

34,216

6.5

Agriculture

1,879

3,717

26,078

70,355

3,516

105,545

20.0

Multifamily

8,795

174

3,042

133

1,166

13,310

2.5

Residential real estate

41,175

3,535

4,176

6,905

2,123

57,914

11.0

Residential construction

2,021

—

—

—

—

2,021

0.4

Consumer

5,181

1,132

644

1,607

296

8,860

1.7

Municipal

5,203

1,297

—

—

—

6,500

1.2

Total

$301,159

$26,325

$57,909

$115,188

$27,665

$528,246

100.0%

Percent of total loans in geographic area

57.0%

5.0%

11.0%

22.0%

5.0%

100.0%

Asset Quality

Nonperforming loans totaled $3.4 million at June 30, 2014, down from $4.5 million at March 31, 2014 and $4.8 million at the end of the same period last year. The allowance for loan loss coverage of non-performing loans was 224.7% in the second quarter, compared to 172.2% at March 31, 2014 and 167.6% at June 30, 2013, respectively.

Nonperforming assets ("NPAs") were $7.1 million at quarter end, compared to $8.3 million at March 31, 2014, and $9.3 million at June 30, 2013. Outstanding troubled debt restructured loans totaled $9.4 million, down from $9.9 million at March 31, 2014, and $11.8 million at June 30, 2013.

The following table summarizes nonperforming assets by type and provides trending information over the prior year.

NPA BY CATEGORY

(Dollars in thousands)

6/30/2014

% of total

3/31/2014

% of total

6/30/2013

% of total

Commercial

$2,205

31.0%

$2,966

35.6%

$1,417

15.2%

Commercial real estate

75

1.1

163

2.0

2,728

29.3

Land and land development

3,811

53.6

3,841

46.4

4,626

49.6

Agriculture

206

2.9

611

7.4

276

3.0

Residential real estate

804

11.3

702

8.5

173

1.9

Consumer

3

0.1

3

0.1

91

1.0

Total NPA by Categories

$7,104

100.0%

$8,286

100.0%

$9,311

100.0%

Commercial real estate and land development NPAs continued to decrease, reflecting ongoing loan resolution activity. Commercial NPAs also declined from March 31 as several commercial SBA loans were resolved during the quarter. Ag portfolio quality continues to be strong, although the Company is taking additional measures to mitigate moderately higher levels of stress in this portfolio. Land and land development loans still comprise the greatest proportion of NPA totals, primarily as a result of one large OREO asset, which was sold on an installment sale contract. The majority of NPAs are in the North Idaho/Eastern Washington region, reflecting the Company's higher loan totals in these areas.

Classified loans totaled $17.5 million at quarter end, down from $19.6 million at March 31, 2014 and $26.3 million at June 30, 2013. The reductions reflect both loan resolution efforts and customers' improved financial strength. Classified loans are loans in which the Company anticipates potential problems in obtaining repayment of principal and interest per the contractual terms, but does not necessarily believe that losses will occur.

OREO balances totaled $3.7 million at June 30, 2014, compared to $3.8 million at March 31, 2014 and $4.5 million at June 30, 2013. One small property was sold from the OREO portfolio during the quarter. As noted above, the bulk of the OREO balance is one development property, which is being sold in an installment sales agreement over a five-year period.

Investment Portfolio, Deposit, Borrowings and Equity Summary

At $261.2 million, investments available-for-sale were stable during the quarter and up $4.6 million from June of last year, as the market value of the portfolio increased moderately. Market rates have been relatively stable over the past few months since dropping at the beginning of the year and prepayments on the Company's mortgage-backed securities have slowed significantly, creating moderate improvements in the Company's investment yield. "Still, finding reasonably priced new investments in this market remains challenging as demand for all types of fixed income securities is very high," said Chief Financial Officer Doug Wright. "Given these conditions, we continue to approach the markets cautiously, keeping our portfolio duration relatively short," he added.

Deposits totaled $693.9 million at June 30, 2014, compared to $710.6 million at March 31, 2014 and $699.5 million at the end of the second quarter last year. The table below provides information on both current composition and trends in the deposit portfolio.

DEPOSITS

(Dollars in thousands)

6/30/2014

% of total

3/31/2014

% of total

6/30/2013

% of total

Non-interest bearing demand accounts

$234,869

33.8%

$237,077

33.3%

$224,472

32.0%

Interest bearing demand accounts

101,477

14.6

103,677

14.6

100,490

14.4

Money market accounts

213,514

30.9

217,954

30.7

222,161

31.8

Savings & IRA accounts

67,528

9.7

69,470

9.8

64,390

9.2

Certificates of deposit (CDs)

30,785

4.4

33,563

4.7

37,495

5.4

Jumbo CDs

45,715

6.6

48,809

6.9

50,362

7.2

CDARS CDs to local customers

—

—

—

—

151

—

Total Deposits

$693,888

100.0%

$710,550

100.0%

$699,521

100.0%

Demand deposit account balances were down moderately from March 31, 2014 as a result of tax payments and operating expenses incurred by commercial clients during the quarter. These balances increased by $11.4 million or 3.5% over the same time period last year. They total a combined 48.4% of the deposit base and represent a strong, low-cost funding base for the Company. Money market account balances have decreased modestly, offset by increases in savings account balances. The Company continues to redeem or reprice higher cost CDs to reduce interest expense and has no brokered or other wholesale CDs outstanding.

Stockholders' equity totaled $99.0 million at June 30, 2014, compared to $95.9 million at March 31, 2014 and $113.0 million at June 30, 2013. The increase over last quarter reflects earnings improvement and increases in the market value of the Company's securities portfolio. The redemption of the Company's CPP preferred stock offset earnings contributions, resulting in the decrease in stockholders' equity from June 30, 2013. Tangible book value per common share totaled $15.25 at June 30, 2014, $14.77 at March 31, 2014, and $13.38 at June 30, 2013, respectively.

Tangible stockholders' equity to tangible assets was 10.8%, compared to 10.5% at March 31, 2014 and 12.1% at the end of June last year. Tangible common equity to tangible assets was 10.8%, compared to 10.5% at March 31, 2014 and 9.3% at June 30, 2013.

Income Statement Summary

Net income applicable to common shareholders for the second quarter totaled $1.3 million, or $0.19 per common diluted share, compared to net income applicable to common shareholders of $1.0 million, or $0.16 per common diluted share in the first quarter of 2014, and $1.5 million, or $0.23 per common diluted share in the second quarter of 2013. For the six-month period ending June 30, 2014, net income applicable to common shareholders totaled $2.3 million, or $0.34 per diluted share, compared to $2.5 million, or $0.39 per diluted share in the same time period last year.

Second quarter 2014 net interest income before provision totaled $7.4 million, up from $7.0 million in the first quarter and down from $7.6 million in second quarter of last year, respectively. The increase from the first quarter reflects higher loan interest income as both loan balances and loan yields increased during the quarter. The decrease from the prior year reflects lower loan interest income as loan yields were modestly higher a year ago, offset by higher investment income and lower interest expense in the current period. The net interest margin was 3.58% for the second quarter, compared to 3.43% in the first quarter of 2014 and 3.59% in the second quarter of 2013. The yield on interest earning assets was 3.95% for the second quarter of 2014, versus 3.81% and 4.04% in the first quarter of 2014 and second quarter of 2013, respectively. The cost on interest-bearing liabilities was 0.39% for the quarter ended June 30, 2014, stable with the 0.39% experienced in the first quarter of 2014, and down from 0.48% in the second quarter of 2013.

The Company recovered $3,000 in loan loss provision during the second quarter, compared to loan loss provisions of $103,000 and $247,000 in the first quarter of 2014 and second quarter of 2013, respectively. The Company experienced net chargeoffs of $92,000 during the second quarter of 2014, compared to net chargeoffs of $11,000 in the first quarter of 2014 and net recoveries of $117,000 in the second quarter of 2013.

The table below provides information on other income for the current three- and six-month periods in comparison to prior periods.

Three Months Ended

6/30/14

% of Total

3/31/14

% of Total

6/30/13

% of Total

(Dollars in thousands)

Fees and service charges

$1,212

47%

$1,122

57%

$1,319

46%

Commissions & fees from trust & investment advisory services

557

22

541

27

645

23

Loan related fee income

403

16

305

15

586

21

Net gain on sale of securities

168

6

5

—

163

6

Net gain on sale of other assets

4

—

4

—

2

—

Other-than-temporary credit impairment on investment securities

—

—

—

—

(21)

(1)

BOLI income

86

3

79

4

85

3

Hedge fair value adjustment

—

—

—

—

80

3

Unexercised warrant liability fair value adjustment

123

5

(106)

(5)

(54)

(2)

Other income

34

1

48

2

40

1

Total

$2,587

100%

$1,998

100%

$2,845

100%

Six Months Ended

6/30/14

% of Total

6/30/13

% of Total

(Dollars in thousands)

Fees and service charges

$2,333

51%

$2,398

45%

Commissions & fees from trust & investment advisory services

1,098

24

1,172

21

Loan related fee income

707

15

1,197

22

Net gain on sale of securities

174

4

203

4

Net gain on sale of other assets

8

—

6

—

Other-than-temporary credit impairment on investment securities

—

—

(63)

(1)

BOLI income

165

4

170

3

Hedge fair value adjustment

—

—

146

3

Unexercised warrant liability fair value adjustment

17

—

2

—

Other income

82

2

153

3

Total

$4,584

100%

$5,384

100%

Other income in the second quarter of 2014 was $2.6 million, up from $2.0 million in the first quarter of 2014 and down from $2.8 million in the second quarter of 2013. The improvement from first quarter reflected increases in virtually all areas of non-interest income, as business activity picked up, the Company sold securities at a gain, and it experienced a positive fair value adjustment on its warrant liability. The decrease from second quarter last year primarily reflects reduced overdraft income and mortgage origination fees. For the six-month period ending June 30, 2014, other income totaled $4.6 million, down $800,000 from the same period last year, as income from mortgage refinancing dropped significantly.

The table below provides information on operating expenses for the current three- and six-month periods in comparison to prior periods.

Three Months Ended

6/30/14

% of Total

3/31/14

% of Total

6/30/13

% of Total

(Dollars in thousands)

Salaries and employee benefits

$4,505

54%

$3,876

53%

$4,283

53%

Occupancy expense

1,145

14

1,181

16

1,174

14

Technology

874

11

822

11

925

11

Advertising

136

2

149

2

180

2

Fees and service charges

109

1

90

1

85

1

Printing, postage and supplies

151

2

175

2

173

2

Legal and accounting

422

5

403

5

484

6

FDIC assessment

146

2

146

2

165

2

OREO operations

39

—

(63)

(1)

32

—

Other expense

707

9

656

9

719

9

Total

$8,234

100%

$7,435

100%

$8,220

100%

Six Months Ended

6/30/14

% of Total

6/30/13

% of Total

(Dollars in thousands)

Salaries and employee benefits

$8,381

53%

$8,458

52%

Occupancy expense

2,326

15

2,359

14

Technology

1,696

11

1,801

11

Advertising

285

2

294

2

Fees and service charges

200

1

179

1

Printing, postage and supplies

326

2

390

2

Legal and accounting

825

5

812

5

FDIC assessment

292

2

351

2

OREO operations

(24)

—

143

1

Other expense

1,363

9

1,611

10

Total

$15,670

100%

$16,398

100%

Operating expenses totaled $8.2 million in the second quarter of 2014, compared to $7.4 million in the first quarter of 2014 and $8.2 million in the second quarter of 2013, respectively. The increase from the prior quarter primarily reflects increases in compensation expense, as lower loan origination cost offsets and higher employee stock and cash incentive plan accruals negatively impacted the comparative total. For the six-month period ending June 30, 2014, operating expense totaled $15.7 million, down $728,000 or 4.4% from the prior period. The decrease reflected reductions in virtually all categories of expense, as the Company continued to pursue cost-cutting initiatives.

The Company recorded income tax provision of $499,000 during the second quarter, compared to $400,000 provision in the first quarter of 2014 and no provision in the second quarter of 2013.

About Intermountain Community Bancorp:

Intermountain is headquartered in Sandpoint, Idaho, and operates as four separate divisions with nineteen banking locations in three states. Its banking subsidiary, Panhandle State Bank, offers financial services through northern Idaho offices in Sandpoint, Ponderay, Bonners Ferry, Priest River, Coeur d'Alene, Post Falls, Rathdrum and Kellogg. Intermountain Community Bank, a division of Panhandle State Bank, operates branches in southwest Idaho in Weiser, Payette, Nampa, Caldwell and Fruitland, as well as in Ontario, Oregon. Intermountain Community Bank Washington, a division of Panhandle State Bank, operates branches in downtown Spokane and Spokane Valley, Washington. Magic Valley Bank, a division of Panhandle State Bank, operates branches in Twin Falls and Gooding, Idaho.

All data contained in this report have been prepared on a consolidated basis for Intermountain Community Bancorp. IMCB's shares are quoted on the NASDAQ, ticker symbol IMCB. Additional information on Intermountain Community Bancorp, and its internet banking services, can be found at www.intermountainbank.com.

Forward Looking Statements

This news release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements may include but are not limited to statements about the Company's plans, objectives, expectations and intentions and other statements contained in this report that are not historical facts. These forward-looking statements are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond the Company's control. Actual results may differ materially from the results discussed in these forward-looking statements because of numerous possible risks and uncertainties. These include but are not limited to the following and the other risks described in the "Risk Factors," "Business," and "Management's Discussion and Analysis of Financial Condition and Results of Operations" sections, as applicable, of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2013: the possibility of adverse economic developments that may, among other things, increase default and delinquency risks in the Company's loan portfolio; shifts in interest rates that may result in lower interest rate margins; shifts in the demand for the Company's loan and other products; declines in the housing and real estate market; increases in unemployment or sustained high levels of unemployment; changes in accounting policies; changes in the monetary and fiscal policies of the federal government; and changes in laws, regulations and the competitive environment. Readers are cautioned that forward-looking statements in this release speak only as of the date of this release. The Company does not undertake any obligation to update any forward-looking statement, whether as a result of new information, future events or otherwise.

Additional Information about the Merger and Where to Find It

In connection with the Merger, Intermountain will file with the SEC a Proxy Statement, and Columbia will file with the SEC a Registration Statement on Form S-4 that will include the Proxy Statement and a Prospectus of Columbia, as well as other relevant documents concerning the proposed transaction. Shareholders of Intermountain and Columbia are urged to read the Proxy Statement and Registration Statement regarding the transaction when they become available and any other relevant documents filed with the SEC, as well as any amendments or supplements to those documents, because they will contain important information. The Proxy Statement and Prospectus and other relevant material (when they become available) filed with the SEC may be obtained free of charge at the SEC's Website at http://www.sec.gov. INTERMOUNTAIN SHAREHOLDERS ARE URGED TO READ THE PROXY STATEMENT AND THE OTHER RELEVANT MATERIALS BEFORE VOTING ON THE MERGER.

Investors will also be able to obtain these documents, free of charge, from Intermountain by accessing Intermountain's Website at www.intermountainbank.com under the link to "About Us" and then the link to "Investor Relations" or from Columbia at www.columbiabank.com under the tab "About Us" and then under the heading "Investor Relations." Copies can also be obtained, free of charge, by directing a written request to Intermountain Community Bancorp, 414 Church Street, P.O. Box 967, Sandpoint, Idaho 83864 or to Columbia Banking System, Inc., Attention: Corporate Secretary, 1301 A Street, Suite 800, Tacoma, Washington 98401-2156.

Participants in Solicitation

Intermountain and Columbia and certain of their directors and executive officers may be deemed to be participants in the solicitation of proxies from the shareholders of Intermountain in connection with the Merger. Information about the directors and executive officers of Intermountain and their ownership of Intermountain common stock is set forth in the proxy statement for Intermountain's 2014 annual meeting of shareholders, as filed with the SEC on a Schedule 14A on March 12, 2014. Information about the directors and executive officers of Columbia and their ownership of Columbia common stock is set forth in the proxy statement for Columbia's 2014 annual meeting of shareholders, as filed with the SEC on a Schedule 14A on March 21, 2014. Additional information regarding the interests of those participants and other persons who may be deemed participants in the transaction may be obtained by reading the Proxy Statement and Prospectus regarding the Merger when they become available. Free copies of these documents may be obtained as described in the preceding paragraph.

INTERMOUNTAIN COMMUNITY BANCORP

CONSOLIDATED BALANCE SHEETS

(Unaudited)

6/30/2014

3/31/2014

6/30/2013

(Dollars in thousands, except per share amounts)

ASSETS

Cash and cash equivalents:

Interest-bearing

$14,257

$16,712

$33,474

Non-interest bearing and vault

8,020

10,122

7,003

Total cash and cash equivalents

22,277

26,834

40,477

Restricted cash

10,866

10,747

12,464

Available-for-sale securities, at fair value

261,190

261,097

256,616

Held-to-maturity securities, at amortized cost

26,109

26,174

22,991

Federal Home Loan Bank of Seattle stock, at cost

2,146

2,167

2,228

Loans held for sale

2,038

628

1,081

Loans receivable, net of allowance for losses on loans of $7,682, $7,779 and $8,042 as of June 30, 2014, March 31, 2014 and June 30, 2013, respectively

520,280

507,000

522,740

Accrued interest receivable

4,657

4,028

4,463

Office properties and equipment, net

34,113

34,232

35,333

Deferred tax asset, net

19,649

20,963

15,058

Bank-owned life insurance

9,962

9,876

9,642

Other real estate owned ("OREO")

3,684

3,768

4,512

Prepaid expenses and other assets

3,191

2,936

2,953

Total assets

$920,162

$910,450

$930,558

LIABILITIES

Deposits:

Interest bearing deposits

$459,019

$473,473

$475,049

Noninterest bearing deposits

234,869

237,077

224,472

Total deposits

693,888

710,550

699,521

Securities sold subject to repurchase agreements

77,847

64,720

85,605

Advances from Federal Home Loan Bank

14,000

4,000

4,000

Unexercised stock warrant liability

925

1,048

826

Cashier checks issued and payable

3,265

2,959

2,278

Accrued interest payable

200

219

316

Other borrowings

23,060

23,235

16,527

Accrued expenses and other liabilities

7,978

7,828

8,440

Total liabilities

821,163

814,559

817,513

STOCKHOLDERS' EQUITY

Common stock - voting shares

97,320

97,180

96,358

Common stock - non-voting shares

31,941

31,941

31,941

Preferred stock, Series A

—

—

26,770

Accumulated other comprehensive (loss) income (1)

1,276

(431)

(641)

Accumulated deficit

(31,538)

(32,799)

(41,383)

Total stockholders' equity

98,999

95,891

113,045

Total liabilities and stockholders' equity

$920,162

$910,450

$930,558

Book value per common share, excluding preferred stock

$15.25

$14.77

$13.39

Tangible book value per common share, excluding preferred stock (2)

$15.25

$14.77

$13.38

Shares outstanding at end of period

6,490,902

6,490,902

6,443,294

Stockholders' Equity to Total Assets

10.76%

10.53%

12.15%

Tangible Common Equity to Tangible Assets

10.76%

10.53%

9.27%

(1) Net of deferred income taxes.

(2) Amount represents common stockholders' equity less other intangible assets divided by total common shares outstanding.

INTERMOUNTAIN COMMUNITY BANCORP

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

Three months ended

6/30/2014

3/31/2014

6/30/2013

(Dollars in thousands, except per share amounts)

Interest income:

Loans

$6,536

$6,114

$6,934

Investments and cash equivalents

1,646

1,642

1,580

Total interest income

8,182

7,756

8,514

Interest expense:

Deposits

390

424

510

Other borrowings

387

358

441

Total interest expense

777

782

951

Net interest income

7,405

6,974

7,563

Recovery of (provision for) loan loss

3

(103)

(247)

Net interest income after provision for loan losses

7,408

6,871

7,316

Other income:

Fees and service charges

1,212

1,122

1,319

Commissions & fees from trust & investment advisory services

557

541

645

Loan related fee income

403

305

586

Net gain on sale of securities

168

5

163

Net gain on sale of other assets

4

4

2

Other-than-temporary impairment ("OTTI") losses on investments

—

—

(21)

Bank-owned life insurance

86

79

85

Fair value adjustment on cash flow hedge

—

—

80

Unexercised warrant liability fair value adjustment

123

(106)

(54)

Other

34

48

40

Total other income

2,587

1,998

2,845

Operating expenses:

Salaries and employee benefits

4,505

3,876

4,283

Occupancy

1,145

1,181

1,174

Technology

874

822

925

Advertising

136

149

180

Fees and service charges

109

90

85

Printing, postage and supplies

151

175

173

Legal and accounting

422

403

484

FDIC assessment

146

146

165

OREO operations

39

(63)

32

Other expenses

707

656

719

Total operating expenses

8,234

7,435

8,220

Net income before income taxes

1,761

1,434

1,941

Income tax expense

(499)

(400)

—

Net income

1,262

1,034

1,941

Preferred stock dividend

—

—

460

Net income applicable to common stockholders

$1,262

$1,034

$1,481

Earnings per share — basic

$0.19

$0.16

$0.23

Earnings per share — diluted

$0.19

$0.16

$0.23

Weighted average common shares outstanding — basic

6,697,386

6,540,902

6,443,294

Weighted average common shares outstanding — diluted

6,765,908

6,606,489

6,484,762

INTERMOUNTAIN COMMUNITY BANCORP

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

Six months ended

6/30/2014

6/30/2013

Interest income:

Loans

$12,650

$13,670

Investments and cash equivalents

3,289

3,172

Total interest income

15,939

16,842

Interest expense:

Deposits

814

1,070

Other borrowings

746

866

Total interest expense

1,560

1,936

Net interest income

14,379

14,906

Recovery of (provision for) loan loss

(99)

(426)

Net interest income after provision for loan losses

14,280

14,480

Other income:

Fees and service charges

2,333

2,398

Commissions & fees from trust & investment advisory services

1,098

1,172

Loan related fee income

707

1,197

Net gain on sale of securities

174

203

Net gain on sale of other assets

8

6

Other-than-temporary impairment ("OTTI") losses on investments

—

(63)

Bank-owned life insurance

165

170

Fair value adjustment on cash flow hedge

—

146

Unexercised warrant liability fair value adjustment

17

2

Other

82

153

Total other income

4,584

5,384

Operating expenses:

Salaries and employee benefits

8,381

8,458

Occupancy

2,326

2,359

Technology

1,696

1,801

Advertising

285

294

Fees and service charges

200

179

Printing, postage and supplies

326

390

Legal and accounting

825

812

FDIC assessment

292

351

OREO operations

(24)

143

Other expenses

1,363

1,611

Total operating expenses

15,670

16,398

Net income before income taxes

3,194

3,466

Income tax expense

(898)

—

Net income

2,296

3,466

Preferred stock dividend

—

918

Net income applicable to common stockholders

$2,296

$2,548

Earnings per share — basic

$0.35

$0.40

Earnings per share — diluted

$0.34

$0.39

Weighted average common shares outstanding — basic

6,619,576

6,443,142

Weighted average common shares outstanding — diluted

6,686,675

6,482,376

INTERMOUNTAIN COMMUNITY BANCORP

KEY PERFORMANCE RATIOS

Three Months Ended

Six Months Ended

6/30/2014

3/31/2014

6/30/2013

6/30/2014

6/30/2013

Net Interest Spread:

Yield on Loan Portfolio

4.98%

4.81%

5.29%

4.90%

5.27%

Yield on Investments & Cash

2.17%

2.15%

2.00%

2.14%

1.93%

Yield on Interest-Earning Assets

3.95%

3.81%

4.04%

3.87%

3.97%

Cost of Deposits

0.22%

0.24%

0.29%

0.23%

0.30%

Cost of Advances

0.84%

3.14%

1.99%

1.22%

2.42%

Cost of Borrowings

1.53%

1.24%

1.89%

1.37%

1.79%

Cost of Interest-Bearing Liabilities

0.39%

0.39%

0.48%

0.39%

0.48%

Net Interest Spread

3.57%

3.42%

3.56%

3.48%

3.48%

Net Interest Margin

3.58%

3.43%

3.59%

3.49%

3.51%

Performance Ratios:

Return on Average Assets

0.55%

0.45%

0.84%

0.50%

0.74%

Return on Average Common Stockholders' Equity

5.19%

4.42%

6.77%

4.81%

5.85%

Return on Average Common Tangible Equity (1)

5.19%

4.42%

6.77%

4.81%

5.85%

Operating Efficiency

82.41%

82.87%

78.98%

82.63%

80.82%

Noninterest Expense to Average Assets

3.65%

3.26%

3.54%

3.42%

3.50%

(1) Average common tangible equity is average common stockholders' equity less average other intangible assets.